The theory of institutions and collective action in Adam Smith's Theory of Moral Sentiments

This paper addresses the theory of institutions and collective action in Adam Smith's Theory of Moral Sentiments. It shows how Smith derives institutions from the sympathy theory and how individual selfish actions are shaped into collective action when guided by institutions. Further, it will be argued that Smith recognizes how individual actions can deviate from the standards of conduct. Smith distinguishes the act of obeying the rules of conduct from that of observing the norms of conduct, citing the differences in the probabilities between observing the rules and norms of conduct as the reason for this distinction.